Eight years ago, a realtor named Eric Malley decided to set up a fund that would buy hundreds of luxury mansions in Manhattan cheaply and rent them to corporate renters before selling them to an institutional investor. He called this the MG Capital Management Residential Fund III and raised $ 23 million from about 60 investors for it. This seems like an incredibly small amount of money to buy hundreds of high-end New York City homes, and it’s a far cry from Malley’s $ 525 million goal. But it certainly seemed successful enough to convince him to launch a sequel, Fund IV, which requested a more modest $ 250 million from a more humble group of investors and raised $ 35 million.
All of this seems very strange to you when reading the marketing materials and offering documents for Funds III and IV as they trumpet two previous funds that collectively manage $ 1.18 billion with decades of overperformance. Surely the investors in these funds would fight to succeed their successors, who were ultimately “100 percent protected against losses” and already had a balance sheet of 250 million US dollars to meet this demand.
Of course, if, despite the names of Funds III and IV, there actually were no Funds I and II, no decades-long track record of overperformance, no record of $ 250 million to cover losses, no pre-signed multi-year leases with hundreds of potentials Tenants, everything would make much more sense. Indeed, the SEC says this was all part of an Eric Malley’s wild imagination, especially the part about complete protection from loss.
Fund III suffered a net operating loss of approximately $ 860,000 from its inception in February 2014 through December 31, 2018, according to the audited financial statements of Fund III.
Fund IV’s financial records indicate that Fund IV earned $ 1.6 million in rent and incurred operating costs of $ 8.3 million from launch on September 26, 2017 through December 31, 2019, leading to Resulted in net operating losses of approximately $ 6.7 million.
The financial records also include unrealized losses on portfolio investments of $ 4.7 million, bringing the net loss to Fund IV approximately $ 11.4 million.
And what, one might ask, was Malley doing when he, holding a New York real estate license but no securities licenses, was absent due to his alleged total lack of investment management experience other than the above? t Are you inventing massive portfolios of Manhattan pieds-à-terre and quarter-billion dollar backstops and hugely successful predecessor funds? He lived in a completely different fantasy world:
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SEC accuses real estate fund managers of misusing more than $ 7 million from retail investors [press release]SEC v Malley and MG Capital Management [SEC]